Carbon border taxes alone would not enable poorer nations to reach climate targets.
With the promise of a new, rational solution to climate change by U.S. President-elect Joe Biden, now is a perfect time to make the case for a World Carbon Bank that will move and organize aid and technical assistance to help decarbonize developing countries. Although having laudable environmental objectives, the latest Green New Deal in the U.S. and the European Commission’s European Green Deal are too inward-looking. Concentrating firefighting efforts on one floor will only prolong the damage, not avoid it, if an entire building burns.
Nearly all of the net increase in carbon dioxide emissions over the next two decades will come from developing economies, according to the International Energy Agency.
Though China has recently committed itself to achieving net zero emissions by 2060, it is sobering to take into account that it accounts for half of the world’s coal output and half of its coal consumption.
India is still highly dependent on its abundant coal reserves and, despite strong advances in solar energy, it is likely to remain so. Clean energy also accounts for just about 34 percent of global energy expenditure, almost exactly where it was five years ago, for all the hoopla around the Paris climate agreement of 2015. Just 8 percent of global electricity accounts for wind and solar energy. The IEA predicts that, for the remainder of their projected lifespan, running existing power plants in their current form alone would lead to a 1.7 °C rise in global temperatures relative to pre-industrial levels.
A carbon border tax on imports from countries without effective carbon pricing schemes is currently the most widely debated solution to encouraging developed countries to reduce their CO2 emissions. The EU is proposing such a measure, and support has also been expressed by the Climate Leadership Council (whose members include the current U.S. Treasury Secretary, Janet Yellen).
Carbon taxes (the European carbon pricing scheme is a more heavy-handed version) are almost unanimously favored by economists so that producers and consumers take into account how their decisions impact the global economy.
The goal of the border tax adjustment is to enable developed countries to implement carbon taxes of their own. Conceptually, the policy is sound, but it is too stagnant and hard to enforce.
To begin with, developed nations do not have the money or infrastructure to transition overnight. The fact that industrial output has shifted to emerging economies which have invested heavily in energy is one reason why advanced economies have been able to reduce their CO2 emissions.
In Asia, the average age of coal-fired power plants is 12, compared with 43 in advanced economies. The cost of decommissioning coal plants in developing Asia is immense, provided that the life of a coal-fired power plant is about 50 years and coal is one of the few natural resources that China and India have in abundance.
And then there’s Africa, where, during the Covid 19 pandemic, the number of people without access to electricity increased to nearly 600 million.
Just another example of the vast wealth and resource disparity between the Global North and the Global South is the gap between the willingness of developing countries to deal with climate change and the ambitious strategies being debated in industrialized economies.
For example, in response to the coronavirus crisis, advanced economies spent over 16% of GDP on fiscal and credit support on average in 2020, compared to 6% in emerging markets and 2% in developed countries, according to the International Monetary Fund.
And the potential for a pandemic debt buildup to intensify into a full-blown debt crisis in developing countries in the coming years may not take into account this wide gap, rendering decarbonization much more difficult.
An important component of any long-term solution to the climate crisis is a global carbon price, but industrialized economies need to give developing countries a carrot, not just a stick. This can take the form of highly concessional financing, combined with technical experience and best practice sharing, all within the context of